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21 April
'17

Grand Session Construction as a Driver of Economic Growth in Russia

The Grand Section discussed ways of attracting investments into the construction industry in Crimea and tried to answer the question: “Why should developers and investors choose Crimea?”

Mikhail Men, the Russian Minister of Construction, Housing and Utilities, reviewed the results of the Ministry’s work over the past three years. He said that for the third year in a row the total amount of housing made available to residents in Russia has never dropped below 80 million square meters a year, which is a record of sorts. This is the result of state support in subsidising mortgage loan interest rates. The volume of mortgage loans reached almost 1.5 trillion roubles, which is 20% more than in 2016.

The minister cited the following statistics for the Republic of Crimea: in 2016 the region issued 642 mortgage loans to the tune of 1.366 billion roubles, which is 3.7 times more than in 2015. “That is still too little. We The problem is there are not enough banks in Crimea. But some progress is taking place,” the minister noted.

The federal authorities are thinking of cutting the mortgage loan rates in Crimea down to the average national level. “We are considering options for bringing the rate in the Republic of Crimea down to the average Russian level so that the people here could use mortgage loans to improve their housing conditions,” Mr Men said.

He noted that the average mortgage loan in the Russian Feferation last year amounted to 11.5%. “The situation is turning around this year. Now our own banks have started to push their loan rate below the national average. Since January 1 this year the subsidising programme has lost its relevance,” the minister said.

Mikhail Men recalled that law 373-FZ on comprehensive development of territories passed in July 2016 is particularly important for the Republic of Crimea. For example, the law approved a mechanism of comprehensive development of territories on the initiative of local government bodies which would help to bring into the process of reorganisation currently inefficient industrial territories in the region’s cities.

“Beginning from September this year a national pricing information system will be put in operation which will give a chance to determine the real cost of construction materials and set the right starting price ahead of auctions,” the minister said.

In conclusion Mr Men said that the Construction Ministry of Russia has approved a roadmap to introduce information modeling technologies (BIM) at all the stages at the lifecycle of a capital construction project. According to experts the use of information modeling technologies will not only lower administrative barriers and reduce the time of construction, but will also save up to 20% of the cost of building projects, the minister added.

Assessing the share of the entire building sector in Russia’s economy Mr Men noted that “One job in construction creates as many as 5–7 jobs in related industries.” This fact speaks for itself: construction in Russia is one of the key drivers of economic growth and one of the country’s main attractions.

Sergey Nazarov, Deputy Minister of Economic Development of the Russian Federation, reminded the participants that the total cost of the Federal Targeted Programme for the Development of Crimea and Sevastopol is more than 750 billion roubles. “Although it got off to a slow start, the list of projects has now been formed,” the speaker added.

In 2017 out of the 600 projects envisaged under the programme 120 will be put in operation. These are mainly social projects,” Mr Nazarov said.

In spite of some problems such as a lag in sales which is due to the quality of design and poor quality of the regulatory framework of land relations, “the programme will be fulfilled on time solving an array of problems existing in Crimea.”

According to Andrey Nazarov, Co-chairman of the Delovaya Rossiya All-Russia Public Organisation and Chairman of the Board of the Yalta International Economic Forum Foundation, “the construction industry plays the key role without which discussing further economic strategy makes no sense.”

“The development of the housing sphere, the speaker noted,” is financed privately, with 40 million Russians living in flats they have bought themselves. The population’s purchasing power influences the development of the housing sphere.” According to Mr Nazarov, “cutting the mortgage loan rate to 7% could increase by 2 or 3 times the number of Russians who can afford to buy their own housing.”

The Co-chairman of Delovaya Rossiya also suggested that businessmen should take part in discussing the programme of renovating five-storey blocks of flats in Moscow.

Vitaly Nakhlupin, Deputy Chairman of the Council of Ministers of the Republic of Crimea, said: “Crimea has an ambitious task in the field of construction and that is to be an explosive growth point. At present an average resident in the republic has 16.5 square meters of housing compared with the average Russian indicator of 23.2 square meters. To match that indicator 12.8 million square meters of housing has to be built.” He said that given the current rate of construction it would take about 40 years to achieve such a level.

Speaking about Crimea’s potential, Vitaly Nakhlupin stressed: “We have everything to attract investments into the construction industry.” And he named the following advantages: historical experience of building in Crimea, the presence of big construction companies, training facilities to turn out skilled personnel, resources of raw material and unique plots of land, all of which makes construction more profitable. The market provides demand and budget financing is available in the amount of some 750 billion roubles until 2020.

“The amount of construction work, including road building, in the first quarter of this year was 426% of the same period last year. In 2015 252,000 square meters of housing were built compared with 285,000 square meters in 2016. Last year we had 170 construction companies and in the first months of this year their number increased to 250. Of the more than 800 projects underway in the special economic zone about 200 are construction projects worth more than 15 billion roubles, the vice premier said.

Along with the advantages Mr Nazarov mentioned the challenges that had to be met: completing the development of construction documentation, optimising transport logistics, bringing down administrative barriers and streamlining bureaucratic and permissive procedures. He believes the problem of mortgage loans is acute because the available volume falls short of demand.

“I would like to stress once again,” said Mr Nakhlupin in conclusion, that the investment potential in Crimea’s building sector is huge. I invite all the developers to build in Crimea.”

Ilshat Nigmatullin, President of GK Granel, said that loan mortgages in Crimea were practically not working. He considers insignificant the amount of loan mortgages issued in Crimea (1.3 billion roubles). The figure has to be 70–80 billion roubles if at least 1 million square meters of housing is to be sold. He noted that 70% of housing on offer in Crimea is apartments, and the tax situation is uncertain. No one can name the exact figure. The tax situation has to be regulated through legislation so that the market and the buyers would understand the rules of the game. Housing prices are about the same as in Moscow, but the quality of housing in Moscow is still better.

Shamil Airym, former deputy of the Turkish Parliament, member of the Board of Directors of the Marmara Grubu Vakfi Strategic and Social Research Foundation, stresses the importance of stronger ties between the two countries. He said that Crimea was of interest for Turkish investors and building companies and they were ready to work in the region.

“I am sure that Turkish contractors, benefiting from the support of the Crimean authorities and the federal government, will do construction work here,” the former MP said. He believes that Russia is a strategic partner of Turkey and recalled that a Russian–Turkish investment fund (500 million US dollars on each side) has been created which will be used if problems crop up in investment cooperation between the two countries. Mr Airym expressed confidence that when all the cooperation agreements are implemented and all the bans are lifted this would have a positive impact on Crimea as well.